07 May 2024 Arbitration Law >> Business & Commercial Law   |   Employment contract >> Corporate Law  

A road construction project in India has hit a legal speed bump, but unlike a pothole, this one has been smoothed over. The National Highways Authority of India (NHAI) found itself on the losing end of a dispute with a contractor, who emerged victorious after the Supreme Court upheld lower court rulings and an arbitral tribunal's decision. The case centred on the contractor's claims for reimbursement due to unforeseen cost increases during the project.

The dispute arose from three claims filed by the contractor for unexpected expenses:

• Increased costs due to higher royalty and sales tax on construction materials.
• Payment for building the initial 150mm layer of the embankment, which the contractor argued wasn't included in the clearing and grubbing contract.
• Reimbursement for additional forest transit fees.

The arbitral tribunal mostly sided with the contractor on all three claims. NHAI challenged these decisions in the lower courts, arguing that the material cost adjustments should be based on the pre-defined Wholesale Price Index (WPI) formula, and the embankment work fell under the scope of clearing and grubbing.

The courts, however, upheld the arbitral tribunal's rulings. The Supreme Court, in its final judgment, agreed with the lower courts' reasoning. They pointed to a previous case where they had already established the contractor's right to reimbursement for increased statutory charges like royalty and fees (claims 1 and 3).

For the embankment construction claim (claim 2), the Supreme Court deferred to the majority decision of the arbitral tribunal. The Court emphasized that courts have limited power to overturn arbitration awards in India unless there's a clear violation of public policy or the award is demonstrably illegal. Since the arbitral tribunal's interpretation of the contract regarding the embankment wasn't found unreasonable, the Court upheld the award.

This case highlights the importance of clearly defined contracts in construction projects. It also emphasizes the limited ability of courts to intervene in arbitration decisions, unless there are serious legal flaws in the award.

  National Highways Authority of India Act, 1988    Arbitration and Conciliation Act, 1996